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A Slow Puncture For Halfords As Stock Markets Drop On Global Growth

Published 02/06/2016, 09:00
Updated 03/08/2021, 16:15

Europe

It’s been an unhappy to start to June for equity markets with big slides across the board led by basic resource stocks and weakness in commodity prices, as concerns about the global economy reassert themselves once more. A slide below $50 a ton in iron ore prices has helped pull mining stocks down heavily along with weak Chinese PMI data overnight, with Antofagasta (LON:ANTO) and Rio Tinto (LON:RIO) leading the sector lower.

Sainsbury’s (LON:SBRY) has also seen its shares slide sharply lower after a KantarWorldpanel report showed that sales slowed 1.2% in the 12 weeks to May 24th, coming in behind Tesco’s (LON:TSCO) who saw its sales decline 1% in a sign that the UK’s biggest supermarket might well be starting to find its feet. These two were the best of a bad bunch with Asda sales tumbling 5.1%. Aldi and Lidl have continued to grow their market share both expanding by more than 10% as a result of opening new stores and expanding existing floor space.

On the companies front heating and plumbing distributor Wolseley (LON:WOS) has slid back after reporting an increase in its restructuring costs as it looks to deal with changes in trading conditions in its UK and European markets, which saw revenue declines in both.

Halfords (LON:HFD) shares got a slow puncture today after the company reported that pre-tax profits fell 1.2% to £80m. If the recent acquisition of on line cycle competitors Wheelies Direct and Tredz was designed to reinforce its position in the cycling market, then it would appear that the jury remains out. The company’s repair services did manage to perform well with 2.5% growth in its garage and parts unit.

US

US markets opened sharply lower today taking their cues from weaker Asia and European sessions, as concerns about the health of the global economy reasserted themselves once more.

The OECD also threw some cold water on the optimism surrounding the US economy by downgrading US GDP prospects for 2016 nudging their assessment down from 2% to 1.8%, below most Fed policymaker’s assessments of the US economic outlook for this year.

As far as the US economy is concerned the latest economic data continued to be optimistic and pessimistic in equal measure. The latest ISM manufacturing report showed an improvement in May, coming in at 51.3, up from 50.8, with prices paid jumping sharply to a four and a half year high, showing a complete divergence to the recent Markit, Philadelphia Fed, Dallas Fed and Empire Fed surveys all of which were significantly weaker.

April construction spending also slid sharply in April, down 1.8%, further muddying the waters for US decision makers. Maybe tonight’s Federal Reserve Beige Book will shed some light on a US manufacturing sector which appears to be giving both red and green signals at the same time. If these data points were a traffic light I’d be sending out an engineer to look at them for a malfunction.

One retailer not having any problems seeing an improvement in sales is luxury goods maker Michael Kors (NYSE:KORS), who reported an improvement in quarterly sales and revenues, above expectations.

Athletics apparel manufacturer Under Armour (NYSE:UA) is also in focus having taken a write-down of $23m, related to the bankruptcy of sporting goods retailer Sports Authority.

FX

The Japanese yen has moved higher after Japanese Prime Minister Shinzo Abe delayed plans to implement a new sales tax next year, deferring it for another two years to the end of 2019, in another example of kicking the can down the road in terms of helping to reform the sclerotic Japanese economy. This begs the question as to what the Bank of Japan does next and given the recent comments from the G7 about currency manipulation their next move could well be constrained by accusations about that.

The pound has continued to come under pressure as polling continues to point to a narrowing of the gap between the “Remain” camp and the “Leave” camps, as the “Leave” camp continues to gain ground. Another doom-laden OECD report on the risks of a vote to “Brexit” probably isn’t helping sentiment either.

Commodities

Oil prices have continued to pull back from their recent highs ahead of tomorrow’s OPEC meeting in Vienna. It is slowly becoming apparent that for all the talk of production caps and freezes that nothing of the sort will be agreed and that the reluctance to give ground on the part of either Saudi Arabia or Iran will see production levels remain at or above their current levels.

Iron ore prices have continued their recent decline dropping below $50 a ton for the first time since February.

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No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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